Green Real Estate Investment Study

8/7/2019 Green Real Estate Investment Study

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How to GET MAXIMUM PERFORMANCE from your INVESTMENT PROPERTIES

Proprietary Information – Property of Simcoe Consulting and Nexzus Publishing)

SPECIAL REPORT:

How to GET MAXIMUMPERFORMANCE fromyour INVESTMENT

PROPERTIES

Go green with your next residential orcommercial investment and add more revenueand profit through the use of green retrofits

By Jim Simcoe and Andrew Waite

Version 4 – June 2010

This report is proprietary and property of Simcoe Consulting and Nexzus Publishing Group)

and is available to clients for their use in identifying and recovering grants, incentives,rebates and tax credits. This information is not complete and is not warranted as such. This

information shall not be used for other than guidance for recovery of personal or business

credits. Reproduction and use for other than the intended purpose is prohibited.





How to GET MAXIMUM PERFORMANCE from yourINVESTMENT PROPERTIES

TABLE OF CONTENTSHOW TO TURN GREEN INITIATIVES INTO GREEN INCOME

By Jim Simcoe and Andrew Waite

Page No.

1. Introduction – How to Reap Immediate Benefits ………………… 04

2. The Business Case - Financial Incentives for Going Green …… 11 3. The Demand for Green Properties …………………………………… 26 4. What People Want – What Buyers & Renters Want………………. 30 5. Who Has the Money? Fed/state/local agencies funds? ………… 34 6. What Money is Available? (Incentives, Grants, Rebates, Tax Credits)

……………………………………………………………………………….. 35 7. How to Successfully Apply for Funds ..…………………………….. 37 8. Retrofitting Rentals as High Performance Rental Properties ….. 43 9. High Performance Green Appraisals…………………………………. 44 10. Green Mortgages (To be written and available in v.4) ..………….. 54

11. Marketing for a Premium Return ……………………………………... 55 12. Avoiding Green Washing ………………………………………………… 60

13. Green Positioning for Better REO Opportunities…………………… 62

14. Resources …………………………………………………………………… 64

15. Bibliography ………………………………………………………………… XX

16. Appendices – Capital Expense & Operating Expense Recovery…. 66

a. San Diego County, San Diego & adjacent cities

b. San Diego City and County Template - Initial Incentive

Recapture

c. Projected Ongoing Operating Cost Improvements with simple

upgrades to water flow and lighting.

d. Maricopa County, Phoenix & adjacent cities





e. Phoenix Program Lists

f. Phoenix City & Maricopa County Template - Initial Incentive

Recapture

Select cities and counties will be mapped and published based on

demand – contact [email protected] to prioritize your town.





1. INTRODUCTION - HOW TO REALIZE IMMEDIATE

BENEFITS FROM GOING GREEN

WHO SHOULD READ THIS DOCUMENT AND WHO CAN BENEFIT?

Any building owner can benefit from understanding and acting on this

information, PERIOD.

As an owner of real estate, whether this is a single family dwelling, a

duplex, small, medium or large multifamily, or any commercial property, any

owner is currently in the position to benefit from many government incentives

designed to reduce energy use, create a more desirable building, a healthier

living and working environment and generate jobs, but most importantly

recover capital expenses for any retrofit, lower operating expenses and earn

more income. This discussion is about improving your investment

performance, lowering vacancies and increasing income.

No matter your politics or position regarding the current stimulus

legislation, this recycled tax money is available to homeowners, investors and

others building owners to encourage energy saving and job creation. Roughly

40% of all energy used goes to heating, cooling and powering the occupants of

residential and commercial buildings.

No homeowner, real estate investor, landlord or commercial property

owner should ignore this content. There is between$1,500 to many thousands

of dollars available per property. This money is finite and could end when it is

all spent or the goal of this portion of the economic stimulus is deemed to have

been achieved.

You are reading an early version of this document that is going to be

updated and future releases will be sent to you at no further charge.





FROM ENVIRO-SPIN TO INVESTOR SPREADSHEET

Over the last five years it has been frequently suggested that we publish

a green edition of our magazine, Personal Real Estate Investor Magazine. We

could never seem to make the connection between well meaning and

businesslike. This report documents the reasons for our change of heart.

Were the polar bears really endangered or just over-exposed? Al Gore’s

conservation statements didn’t jive with his Gulfstream V? Green Peace’s

warlike activities, Friends of the Earth’s and Earth Liberation Front’s firebombs

seemed to be an extreme and counter-intuitive way to express concern for the

environment. Add the academics at the University of East Anglia, NASA and

the United Nations “cooking of the climate books” and who are you to believe.

The message and the numbers did not seem to sensibly coalesce. Hype or

hope? In short we suffered from “green fatigue” that clouded my ability to grasp

the worth of the message.

Yet underneath all of this was an instinctive and inbred sense there was

a more practical aspect to this very over-spun “go green message.”

“TURN OFF THE LIGHT!”

As a child I was taught last one out of the room turned off the light and

the TV. We could see it. It saved my parents money. It was local and it made

sense. The light bulb was hot when on and cool when off.

The more recent environmental message had gone global and although

makes commonsense most of us were desensitized as this does not appear tobe that immediate as rising sea levels seem to be decades away.

The benefits of being environmentally sensitive on a global scale did not

seem to easily or locally translate onto a spreadsheet for a “fix and flip” or buy





and hold real estate investor. That was of course until we started to meet Eco-

Brokers©, real estate environmental consultants and lobbyists.

EcoBrokers© are a self-selecting brand of real estate professionals who

are in search of an edge in real estate sales. Green sounded like a good

marketing message. Sadly most of the proponents of these types of initiatives

depend on theory and the global message of green is good. We are not

impressed as we know consumers and others are not motivated by public

service announcements or feel good initiatives. Change only occurs when

rewards follow. We decided we need to find ways to monetize these green

strategies and make to these measurable. Then change would follow.

This report is our journey to that goal.

“TURNING ON THE LIGHT!”

These and others in real estate had taken the time to understand the

issues, the market positions, what needs to be done, who to go to for financial

encouragement, guidance to the investment incentives and why the market is

ready for this message. Examples show the culture of the real estate industry is

being heavily influenced by legislation and the incentives that are being

brought to effect environmental change.

• Did you know that in many markets there are up to 25 different

grants, tax credits and financial incentives and other benefits in

place to encourage adoption of the environmental standards by a

home builder, renovator or investor?

• Did you know that appraisers are encouraged to value homes and

apartments at ten percent more than non-green equivalents once

they are brought up to recognized environmental standards?• Did you know there is more demand for retrofit properties than

there are properties that are specifically defined as energy efficient.





This study will show you how to go about learning, acquiring and benefiting

from these incentives. This is how to make money as an enviro-capitalist.

FROM GREEN POLAR BEARS TO GREEN BACKS

PUBLISHERS NOTE: My background includes responsibility for selling

systems, services and advertising. I have worked in the computer business,

the law and accounting, run the commercial side of an Indy 500 winning race

team and published magazines in the technology, investment and real estate

industries. At the end of the day, any business needs revenue and profit to

remain in business and the numbers all must go on a spreadsheet. Good and

bad.

We started our research on Maximum Performance from your Investment

Properties and were surprised at the inability of many green proponents to

articulate why it made economic sense. Lots of good “feel good” but few

make it “look good” on a spreadsheet.

They truly have not explored and developed the core reason for sales

success by showing a client why it works for them and delivers a measurable

return.

The green movement generally does not understand the difference

between capital expenses or operating expenses and then the knock on effect

these investments generate. They do not monetize their theory as in their

opinion developing real financial reasoning apparently destroys the purity of

their message.

They do not “do spread sheets as doing laundry and making beds” is for

ordinary people and not leaders of this movement. This report tries to changethis and deliver clear economic justification for “going green to bank green.”





ENVIRO-CAPITALISM – BANK ON IT!

“Being ‘green’ is a by-product of a high-performance company,” says Jim

Simcoe, principal and founder of Simcoe Consulting, a green strategy

consultancy “not the other way around. If you are focused on ‘green’ as a final

outcome,” says Simcoe, “you’re taking your eye off the ball. High-performance

companies ultimately become green as a by-product of their efforts because

they are efficient. The fact they are environmentally thoughtful and it makes or

saves them money justifies the strategy. The bonus to the economically

resourceful is leveraging the rebates, tax credits and grant incentives that add

to the bottom line.”

Earth Advantage Institute, Portland, Oregon, found that builders and

real estate agents can market and monetize green building. In the year through

July 2009 traditionally newly built homes sold for an average of $173 per

square foot while similar but green certified homes sold for an average of $193

per square foot or a premium of nearly twelve percent, not counting any green

build incentives.

Green buying, renovation and marketing strategies are becoming

increasingly defined as tools that materially advantage:

• Builders,

• Real estate professionals,

• Homebuyers, or

• Investor clients,

• Commercial building owners and

• The ultimate occupants of these properties (buyer or renter.)

Going green can now be translated into “net green” for a homebuyer,building owner or investor or in turn, their renter, residential or business.

As an owner, navigating your way to the eco-incentives that green

renovation and green marketing can deliver is still a specialized field. This

report is designed to raise your awareness, show you the steps and introduce





you to resources that can deliver an investor or home buyer an immediate and

long term financial eco-edge.

This means helping find, make or save you money!

ABOUT THIS DOCUMENT

We are writing this document in a dynamic environment.

NOTE: Our first take on two sample cities and case studies show at

least $3,500 in recovered incentives and rebates alone. No grants, loan

considerations or personal tax credits were applied. These are all

additives to the capital expense reduction.

We have rushed it market so we can provide help to investors in tracking

down these grants, incentives, rebates and tax credits. Some are expected to

expire relatively soon, so immediate compliance and application is relevant.

Others are perennial, but have a time sensitive exception. Then there are the

local and regional variations of the incentive applications. We start by

providing residential and business templates for a couple major cities and will

back fill templates for most major investment markets to meet demand. As a

subscriber to Maximum Performance from your Investment Properties you will

be updated on these templates as we complete these. Thank you for your

support and your business.

For questions or comments email [email protected]





2. THE BUSINESS CASE FOR GOING GREEN

General Overview

Going green used to be a hurdle. It was more costly, meant dealing with

bureaucrats and thus was more difficult and marginally desirable to all but the

dedicated environmentalist. “Being green” was for Kermit and those with

environmental lifestyles.

Much has changed. Now going green has shifted into main stream, has

become affordable and profitable, and more desirable for the average

consumer. The current incentives for property owners and especially for real

estate investors make and close the case for going green. Real estate investors

should embrace this enthusiastically as going green means better margins.

There is cash from grants and rebates, and rich tax credits. The bonus, not the

reason for going green, is an improved market position that translates into

financial advantages.

WHY NOW?

Why is this finally happening?

Before explaining, let's first set a true definition of a green real estate

initiative since it can be both ambiguous and misunderstood.

Going green can also attract unnecessary controversy. For the record,

any project, initiative or effort must incorporate four elements to be considered

green:

1. Environmentally Friendly – The resulting building must cause less

impact or damage to the environment than the available alternatives.

2. A Healthier Living Environment – The new construction or retrofit

must create a healthier living/working environment.





3. Marketing Advantage – The result must be able to be genuinely

presented as a green property that is more attractive prospective

occupants whether homebuyers, renters, investors, rental owners or a

business and their employees.

4. Financial Advantage – The result must lower operating expenses thus a

lower cost of occupancy, generate a higher appraised value over

comparable non-retrofit or green buildings and sell or rent faster as a

genuinely green property.

If the effort does not achieve all four elements then it's not really a

sustainable, high performance or green property, especially when trying to

creating added value in a real estate investment.

WHY HAVE GREEN PROPERTY RENOVATION AND UPGRADES BECOME A

VIABLE INITIATIVE FOR REAL ESTATE INVESTORS TO PURSUE?

There are dozens of reasons but these can all be boiled down to three

major categories all related to monetary values: market demand, energy

efficiency incentives and increased property performance.

Restated what will the capital expense of turning this property into a

high performance property generate in terms of capital recovery (grants,

incentives and rebates as well as improved appraised value) operating efficiency

and avoided capital expenses. Where high performance is used to position a

property for sale expect higher appraised values, income capitalization rates

and a faster sale. In the case of a rental property, chances of higher rents and

lower vacancy rates are well within the norm. The caveat whether selling or

renting high performance properties is the skill and knowledge of those

charged with the task of skillfully packaging, marketing, presenting and sellingor leasing these properties as high performance properties.

A. MARKET DEMAND – DEMONSTRATED BUYER DEMAND

As consumers become more knowledgeable about the desirability of





green strategies, the demand for environmentally friendly products and

services has risen. Beware however, this is still neither mainstream nor

without controversy.

An expert in real estate brand management with a home that is currently

offered for sale, (and after expressing a degree of skepticism) commented that of

the 38 unsuccessful showings, not one of the prospective buyers had raised

any questions about the energy efficiency of the home or any retrofits. As a

seller this individual had not lead the market with this conversation and

potential differential and valuation benefit.

While consumers may care about protecting the planet as it seems to be

a laudable goal, individuals are most concerned about protecting their lives

and the lives of their families and doing so without undue expense. Make no

mistake this is about money.

Recent studies have illuminated the dangers of every day 'non'-green

toxins that are found in the home and workplace. Ordinary carpet contains

undesirable chemicals like ammonia, benzene and formaldehyde that “off gas”

into the air that is breathed by the occupants. As consumers and businesses

learn about the toxins contained in common materials like paint, carpet,

engineered wood and paneling, cabinets, and plastics, green rated products are

chosen or specified because they are presumed to be safer. These are rated

better for the environment as harvesting and manufacturing generate less toxic

byproducts and are considered less environmentally harmful. These are

ancillary benefits as once again this is about money.

Increased demand is boosting growth of companies who specialize in

green products. More volume gets a lower price and a lower price gets more

sales. Major international companies are developing green product brands andas more become available, selection and volume increases and the rising

volumes further reduce prices. As this pattern continues, affordable

alternatives are coming to market and becoming more competitive with, and

even, replacing non-green products.





The effect of all of these new product entries or market volume entries

has been to reduce the premium for green products to even with, or as little as

ten percent more than, the equivalent non-green retrofit product. Coupling a

retrofit with a make habitable in a fix and flip or make rent ready in buy and

hold applications further reduces effort and cost.

B. ENERGY EFFICIENCY INCENTIVES – ADDED MONEY FOR GREEN

RENOVATION

A real tipping point has occurred with the introduction of significant

incentives by various government agencies and private brands. These

particularly important provisions for real estate investors who choose to pursue

a green strategy. Incentives can include product and service rebates, grants

and incentives. They exist on the federal, state, county, city and non-

governmental agency level. A homeowner doing the same renovation has a

number of tax incentives that may apply as additional capital expense and

recovery justification.

Here are two examples of incentives application and payback:

a. Multifamily Property - San Diego, California: A landlord received a

$25,000 cash rebate for upgrading the irrigation system on a multi-family

property. This rebate covered equipment including energy efficient sprinkler-

heads, weather sensors, and control stations.

Another recent project for a landlord required replacing all of the

sprinkler-heads and sensors. The net cost after the rebate was $2,200. The

water savings that became available to this property because of this new

system was approximately $19,000 per year.

b. Urban Streetscape Renewal - Detroit, Michigan: $3.4M was

awarded to the city through the Stimulus Plan (American Recovery and

Reinvestment Act of 2009) to revitalize the streetscape for three streets in

downtown Detroit. An investor purchasing property in the area should expect





an increase in property value by following the urban renewal and purchasing

investment properties in these locations.

The bulk of incentives are given for energy efficiency improvements and

employing a green strategy in any building upgrade.

For fix-and-flip or buy-and-hold investors, these incentives can make a

difference and provide the bonus between a marginal and a profitable

investment. The incentives and rebates subsidize work that the investor would

complete anyway. Now the investor gets paid to do something they planned

upon doing anyway.

In addition, the subsidy to buy materials and labor actually improves the

property value and helps make the sale or rental at a potentially higher value.

IMPORTANT CAUTION

MARKET TIMING AND POTENTIAL INCENTIVE EXPIRATION

The current market desirability of going green is a benefit for real estate

investors. Do not expect this to last beyond the next 18 months. After

that there is a potential these incentives will be gone as funding will

have run out.

The environmental popularity combined with public and political

pressure to save energy has pushed utility companies and government

agencies to offer incentives to save energy, reduce water use and relieve the

pressure on city sewer and trash services. In tough economic times that

pressure increases exponentially. Costs remain constant, revenue drops and

taxes become harder to raise.

Once the tipping point occurs in the momentum to achieve the tangible

and financial benefits of going green, and the rebates and incentives are used,they will start to become less available. The utilities, municipalities and other

government agencies will no longer need to offer these as energy and water use

has been reduced and a sustainable trend established. Enough people will

have embraced the concept of green building. All new builds will be required to





follow sustainable green strategies. Renovation of existing buildings will be

required to follow sustainability building standards so that the majority of all

housing will have a reduced total cost of ownership because of lower energy

use.

C. HIGH PERFORMANCE PROPERTY – A SALES OR RENTAL ADVANTAGE

Companies like Mercedes Benz and Boeing get to be class leaders and

flagship brands that represent quality because of, attention to detail and

associating themselves with high-performance and execution excellence.

Customers choose to do business with these brands expecting products or

services that are best in class.

Green real estate projects should set a similar standard. They are

regarded as environmentally-friendly, but now green projects are increasingly

being thought of as high-performance and more recently financially rewarding

projects.

Green residential projects tend to be built better, use improved materials

and provide superior energy savings with less negative environmental impact.

They may cost a little more to implement, may attract incentives, cost less to

operate and are more comfortable and safer for those who live and work in the

resulting buildings. The performance of these properties is perceived as

superior in every way to non-green projects. But this still is about money.

An investor using a green renovation strategy is ahead of the majority.

Green real estate investors’ properties are considered to be of higher

construction quality and lower energy usage, therefore worth more money.

BEWARE - This is only the case if the property is conscientiously

marketed by a competent real estate professional who understands the value of green positioning. It is the combination of these elements that provide a strong

business case for green real estate investment.





CASE STUDY – CASE CLOSED ON HIGHER RENTS

Benefits from going green are easily realized by property managers and owners

in terms of incentives, fewer vacancies, enhanced marketing and savings in

both time and money. While going internally by reducing paper and saving onpostage is great, many owners or investors don’t really see the true benefit until

it is leveraged at the direct interests of their owner landlord. This is the

external application if being a green property manager.

Smart property managers can deliver real benefits for tenants and

returns for owners by making rental properties more energy efficient. The

bonus is positioning these rentals as efficient retrofitted rentals that cost less

to occupy.

Spin to Spreadsheet

Property management system provider Propertyware has a

GreenPropertyManager.org initiative. They appealed to their customer

HomeLovers who decided to examine a customer-focused energy efficiency

strategy by way of a proof of concept. The theory was that green property

rented faster and for premium rents but would this prove to be true in

practice?

The first step was understanding specific rental property efficiency. What

changes need to made to increase both energy and investment efficiency. If

there were any government incentives that may apply how could they be

captured to partially fund this retrofit?

The second step was to actually retrofit a typical rental property with

energy efficient solutions and apply for and collect any available incentives.

The third step was to prove that the property was considered a preferred

rental by the market and therefore could demand a higher price and attract

more tenants.

This case study consciously ignores the extensive list of other benefits

from adopting other internal and external efficiency strategies.

Attracting Ten Percent More Rent





The market rent for this ‘test’ property was $1,045 per month By

repositioning it as an energy efficient with a lower energy bills, the property

ended up renting for $1,145. This generated a monthly premium of $100 over

market rent, annualized at $1,200.

This little experiment proved that premium rent was possible from

positioning, advertising, and selling a rental property as ‘green’ or energy

efficient.

An advertisement was created and posted specifying energy efficiency.

The advertisement attracted a higher number of better quality renters that

were willing to pay the higher rent. The property rented more quickly than the

average time to re-rent. A premium rent was achieved in a very price sensitive

market with little or no additional effort. The common belief by professionals

was that being green would not make a difference.

# C o l u m b i n e R d P h o e n i x A Z O p e r a t in g

Targeted Retrofit to Buy & Hold Capital Capital Improvement

Done during tenant transition Cost Recovery + Income

Total $1,340 $ 740

Capital recovery <$ 740>

Net capital cost $ 600

Operating Savings40% off annual electric bill $1,080

Reno/Retrofit Cost Subtotal $ 600 <$ 740> $1,080

Rentals Sales Advantages

Rental premium (+$100mo) $1,200

Reduced vacancy (less .75 mo) $ 800

Tax Credits $1,500

Total (Year One only) <$ 600> $1,500 $3,080

Property Valuation

Property Value (Cost 50K) $150,000

Post-Retrofit Appraisal (+5 - 7%) $160,000

Higher Rent, Better Tenants and New Fees

The advantages of positioning as a Green Property Manager is

still a relatively unique message for the average property manager.





More importantly is the attraction of a better tenant

demographic that are willing to pay higher rents for a lower cost of

occupancy because of lower energy use. The owner clearly benefits

in terms of incentives, fewer vacancies and more reliable tenants

The fact a property manager can generate fees and higher rent

also means greater income to the property manager.

HomeLovers has transitioned from proof of concept to

improving the income for both their owners and their business.

TAKE AN IMMEDIATE MARKET ADVANTAGE

Now take an immediate advantage.

Position, list and present your property as a green property whether it is

for sale or a rental. This property has been renovated in a green friendly

manner. It is managed in a way that pays attention to environmental impact.

This will reduce your competition significantly.

By positioning this way, you can attract more buyers or renters in a

demographic that is prepared to pay premium prices even in a down market.

Put simply, this is a class of buyers or renters that wants to live/work in

places that are safer and cost less to operate. This demographic will pay more

for that opportunity. This is only half the story.

The grants, rebates, green loans and tax credits pay an investor to

develop property reflecting these cost saving and investment justification

values. Green upgrades and marketing strategies will position as a higherquality product and a market differentiator that should translate into financial

advantage.





ALREADY GREEN – ATTACKING TOTAL COST OF OWNERSHIP

Location - The greenest property is an existing property. A well located

inner city property can deliver potential savings well beyond any newly built

property in the far-burbs. There are companies like HomeVestors who haveexploited this strategy to great effect, providing fairly priced properties to

investors to renovate and flip or renovated homes to buy and hold or sell as

starter homes for first time homebuyers.

Consider the fact that many homes in many markets are currently priced

below their replacement cost. The home as it stands, in the current condition,

may be considered beyond its useful life or “lifed out.” A thoughtful renovation

on top of a below market purchase, that is renovated employing green products

and methods can give new life to this home at significantly less than costs of a

new build.

Add a convenient property location and this may mean the occupant

does not incur extended commuting distances saving time and auto energy

costs. This means the “total cost of ownership” and/or use of this home or

rental is significantly less than a home in a more remote suburb.

Existing Structure Optimized - We believe focusing on green sensitive

remodeling begins with location, followed by designs that optimize the existing

structure within the current building footprint thus minimizing the need for

any new construction.

A home is considered a remodel and not subject to the stricter building

standards of a new build provided at least one ten foot wall is retained in the

final plan. This reduces the waste of construction and the need for new

material by preserving the existing outside walls.

Resources Well Managed - A renovation that pays attention to water

consumption can reduce water use by over 50% through indoor and outdoor

efficiencies such as low flow fixtures and drip-irrigation. Healthier indoor air





quality can be achieved by selecting products with reduced out-gassing

specifications while maintaining quality and aesthetic appeal without

sacrificing the need to stay within budget sensitivities.

The result of a green-ovation or green-hab of this sort is a home that is

well located, within reasonable commute, at significantly less than the cost of

new construction in a potentially less established more remote neighborhood.

LOCATION, LOCATION, GREENER LOCATION

Choosing a location that is not convenient to the occupant’s lifestyle is asignificant source of expense, energy, time and personal wear and tear. The

financial advantage of living close to those aspects of your life that a person

deems important is no argument.

In an era of cheap gas and lighter traffic, many of us thought nothing of

a 60 minute one way commute to work. The phenomenon even earned its own

epithet in “drive till you qualify.” As the economy tightened, those homeowners

who had bought more home for less by accepting the inconvenience of a longercommute, found it harder to make ends meet. Gasoline and time are not

operating expenses that can be easily deferred.

Buying a lesser home in a neighborhood that is closer to the major

activities in a buyer’s life mean lower expenses due to the consumption of less

gasoline, less wear and tear on a car and an owner.

AN EARTHQUAKE WITH A GREEN & SILVER LINING

THE HEALTHNET CALL MEMBER SERVICE CENTER.

In 1994’s Northridge earthquake knocked out a major interchange on

Highway 5 north of the San Fernando Valley. This interchange provided access

from the towns of Lancaster and Palmdale to the Los Angeles metropolitan

area. HealthNet had 60 plus employees commuting singly or carpooling nearly





150 miles a day from Lancaster & Palmdale. They could no longer reach their

place of work.

After major repairs were made and the highway reopened, The County of

Los Angeles approached HealthNet and asked them to consider setting up a

satellite call center in Palmdale. Fortunately the technology and the economics

of successfully building and operating a remote call center made sense. This

was only half the story.

The day the center opened, the sixty employees instantly saved $5,000 a

week in gasoline costs, 60,000 miles of travel and recovered 900 hours or 15

hours a week per person to reinvest in their lives and families. Back then Los

Angeles was not considering the impact on the environment short of reducing

the amount of traffic on the freeways.

GRANITE COUNTERTOPS AND CROWN MOLDING DOES NOT TRUMP A

TWO HOUR COMMUTE

The interesting note is the way master planned communities are

conceived and planned. Commercial and office development follow residential

development, and then only when enough “rooftops” and people exist to

generate enough volume to justify local business and employment. This means

the first people to buy in these neighborhoods are forced to commute extended

distances over under-engineered roads until enough volume occurs.

This is backwards and makes remote neighborhoods a hard sell for a

developer. Betting in future growth and development into a self contained

community is a leap of faith. Until that happens, this means residents are

forced to spend more on gasoline, energy and time.

As an investor considering an investment purchase that will appeal tothe largest universe of homebuyers or renters, consider a little less well located

house and assure your tenants more convenience from a well located life.





Picking (Housing) Stock - LOCATION ANALYSIS

Current trends are pointing to downsizing both in homes and the cost of

upkeep and in new apartment sizes. Everything that is old is new again based

on current and projected energy costs. Investment property value and futureperformance (appreciation, rents, neighborhood demographic trends, etc.) is

based on how broad the appeal is to desirable buyers and renters.

Location, location, location is a housing mantra. We articulate this based

on the common sense, convenience and costs. Scoring a location is based on

fundamental and technical financial elements and five vital, cultural and

personal factors and the necessity of a good economy. See the following

diagram:

Personal Real Estate Investor Magazine’s companion title “Where to Live Books”

scores neighborhoods values. These are explained as follows:

1. Value as perceived by the buyer and their budget,





2. Convenience to the buyer’s universe: job, family, friends, fun & faith.

3. Amenities: If you eat out? Restaurants. If you eat in? A good

supermarket, the bank, the post office etc.

4. Good School District: Even if you don’t have children, the existence of

good schools is an indication of a community’s self image and

reinvestment in culture.

5. Beauty: people like to live in pretty places.

More people want to live there for a reason. Most great neighborhoods

are centrally located, are less costly to live and operate in and are therefore

more recession proof. Where better to live, build or invest whether you are a

homeowner or a commercial property owner?

“LIFE” & “STYLE” ARE TWO VERY DIFFERENT WORDS

The marketers throw around the word “lifestyle” with great ease. “Life” is

something you live while “style” is something you pay for. Crown molding and

granite countertops in exotic far-burbs do not trump a two hour commute.

Translating this into the world of environmentally efficient home or

commercial property ownership or being an investor means appealing to the

largest possible clientele.

Today’s home buyer or commercial tenant is being encouraged by the

nature of the economy to consider green properties first as more

environmentally efficient and offering lower operating costs. If you are an

investor, right now the capital expense of upgrading any well located residential

or commercial building is being subsidized by local utilities, municipalities,

counties, state and federal grants, incentives, manufacturer rebates and

income tax credits.





3. THE DEMAND FOR GREEN PROPERTIES

Buyer Statistics & Green Surveys Point the Way

The demand for green properties is currently greater than the supply of green properties. People will pay a premium for a certifiably green property or

rental home even in a down market. This is only half the story.

Various grants, rebates incentives and tax credits make it cost-effective

and relatively easy to begin implementing. Smart investors can capitalize on

this trend and reap financial rewards.

This study is designed to introduce what these strategies are, what steps

can be taken and why they result in financial returns.

Right now there are more buyers and renters desiring green homes than

there are green homes to buy or rent. Increased awareness on safety and a

heightened focus on energy cost reductions are combining to create a market of

green buyers/renters that builders and real estate rehabbers have not kept up

with. Put simply, the supply for green has not kept up with the demand .

Some compelling statistics:

Earth Advantage Institute, Portland OR found that in the year through

July 2009 traditionally newly built homes sold for an average of $173 per

square foot while similar green certified homes sold for an average of $193 per

square foot or a premium of nearly twelve percent, not counting any green

building grants, incentives, rebates, green loans or tax credits. (FYI, this

paragraph also included on page 7)

This study was under-written by product providers, builders and real

estate professionals who needed to validate claims that green strategies

improved financial performance in home sales. The abstract of this 2009 study

by Earth Advantage follows:





Certified Home Performance: ASSESSING THE MARKET IMPACTS OF

THIRD PARTY CERTIFICATION ON RESIDENTIAL PROPERTIES Earth Advantage Institute

May 29, 2009

Abstract The report presents an analysis of the market performance of third-partycertified sustainable residential properties in the Portland and Seattlemetropolitan areas. In each location, a sample of third-party certified homeswas selected and comparable homes were found. The author documents thatcertified homes in the Seattle metro area sold at a price premium of 9.6% whencompared to non-certified counterparts, based on a sample of 68 certifiedhomes. In the Portland metro area, certified homes sold at a price premiumranging between 3% and 5%. In addition, the certified homes stayed on themarket for 18 days less than non-certified homes. These results are based on asample of 92 certified homes and comparable properties approved by a project

appraiser.This investigative research effort also includes surveys and interviews

with the builders of third-party certified homes and their residents. The authordiscusses the inherent limitations of current valuation practices for homes withsustainable features. Finally, the report includes a synopsis of related researchon the relationship between marketing initiatives and the sale price of third-party certified properties. Executive Summary CERTIFIED HOMES ARE WORTH MORE

This report explains the basis for this statement, using an analysis of third-party certified sustainable homes in the Seattle and Portlandmetropolitan areas. Moreover, the report shows that there are severalimportant issues inherent in this seemingly simple statement. The reportconcludes with recommendations to further expand the study of the marketperformance of third-party certified sustainable homes. It supports heightenedcollaboration among residential appraisers, real estate brokers, homebuilders,and sustainable building advocates to improve a common understanding of themultiple issues involved in home valuation and communicating the results to alarger audience.

How one defines a building’s value may vary. Market sales information is

based on standard approaches to building appraisal that do not account forperformance-based cost savings. Further, standard approaches do not considerresident health or broader environmental benefits that result from themeasures required to achieve third-party sustainable certification. Publicunderstanding of general sustainability concepts has certainly improved in thepast 5 years. At the same time, more homebuilders recognize the potentialmarket advantages of building certified homes. However, for many consumers





and some homebuilders, the connection between quality home constructionand sustainability is not always understood. COMPARABLE PROPERTY STUDY RESULTS

Earth Advantage Institute selected Taylor Watkins of Watkins &

Associates in Portland to serve as the project appraiser for the comparableproperty analysis. Watkins recommended the parameters for defining acomparable home and reviewed suggested comparables for their suitability. Theparameters used to identify a comparable home are listed in the study. Thegoal was to test the hypothesis that certified homes would demonstrateimproved market performance in terms of sales price and time on market thancomparable, non-certified homes.

In Portland, a sample of 92 certified homes and 340 comparable homeswas compiled. The certified homes were built between 2000 and 2008, with amajority sold in 2006 and 2007. Most certified homes were matched with 3 or 4comparables. Certified homes were geographically distributed throughout the

metro area.The Portland study found that:

• Certified homes sold 18 days faster than non-certified homes.• Certified homes sold for 3% to 5% more than non-certified homes. In astatistical analysis with a 95% level of confidence, the overall price differencewas found to be 4.2%.

In Seattle, a sample of 68 certified homes and 207 comparableresidences was determined. Like the Portland sample, most certified homeswere matched with 3 or 4 comparable homes. The Seattle analysis alsodocumented superior market performance in terms of the sales price achieved.• The expected percentage change for sales price was found to be 9.6% more for

the third-party sustainable certified homes.• The certified homes did not sell faster, and stayed on the market an averageof 5 days longer (or 40% more time on the market).

These findings are positive factors that will work to the benefit of sustainable home builders and consumers, providing welcome news during atime of reduced home market activity. CONSUMER INPUT

The same issues that determine how much someone is willing to pay fora house - location, amenities, and size – are involved whether one is shoppingfor a certified sustainable home or not. However, residents living in third-party

certified homes should also understand the sustainable features and thepositive impact of those features on the longevity of their homes. The studyrecommends public education so that current and future residents of certifiedhomes will have a greater understanding of those benefits.

Earth Advantage Institute, Master Builders Association of Pierce County,and Olympia Master Builders conducted surveys of residents living in eitherEarth Advantage® or Built Green® certified homes. Residents value the





sustainable attributes of their homes, particularly energy efficiency andimproved indoor air quality. Of those surveyed, 90% reported that they wouldchoose a certified versus a non-certified home for their next residence if allother factors were equal. Collectively, the residents also agreed that they wouldpay more in order to continue to live in a sustainable home. Eighty percent of

the survey respondents living in a third-party certified home reported that theywould pay up to 5% more in order to move into a home that had been certifiedas sustainable versus one that had not. SELF-CERTIFIED AND THIRD-PARTY CERTIFICATION Consumer surveys were taken from residents living in both self-certifiedand third-party certified homes. In many respects, their answers were similar.Both groups agreed that energy efficiency and indoor air quality were extremelyimportant. In one area of difference, residents of self-certified homes reportedthat sustainable certification was less of an influencing factor in their decisionsto buy a particular home than did residents of third-party certified homes.

(Thirty-one percent of residents in self-certified versus 61% of residents inthird-party certified homes reported that the certification was an influence intheir decisions to buy their homes). Additionally, 56% of third-party certifiedhome residents reported that their utility bills had been lowered by moving intoa certified home versus 46% of non-certified home residents. HOMEBUILDER INPUT

Thirty-five builders responded to an online survey and an additional 10Earth Advantage homebuilders provided in-person interviews. The homebuilders answered questions regarding any costs associated with building athird-party sustainable certified home and trends in those costs over the past

five years. They were also asked to assess current appraisal methodologies.Home builders responded that awareness for sustainable features in a homehad grown significantly over the past five years. Despite this, however, demandfor third-party certified sustainable homes had not directly increased as aresult.

The survey asked if there were added costs associated with building asustainable residence. The majority of the respondents – 74% - indicated thatbuilding a home to certification standards was more expensive than building ahome to code. However, they also noted that the change in cost is comingdown. (See Table 5.4.) The increase in construction costs was observed to bebetween 5 and 10%. As builders become more experienced with the

specifications of a given program, and as their networks of sub-contractors andother knowledgeable professionals become more extensive, they have seensome of these cost increases go down. Home builders join the call for increasedpublic awareness related to sustainable building practices and increasedcollaboration among sustainable building advocates.





Editors Note: This study was done prior to the roll out of most of the incentives, grants, rebate and tax credits discussed in this Maximum Performance from your Investment Properties from this report.

Other references substantiating the argument that green upgrades aredesirable come from The National Association of Realtors and McGraw Hill

Construction reports.

MARKET MOMENTUM DOCUMENTED

1. Surveys conducted by the National Association of Realtors (NAR Profile

of Buyers’ Home Feature Preferences, August 2007) have predictably

found that nine out of ten Realtors® say their clients are interested in

energy-efficient features of green homes and the potential cost savings

of such features. An overwhelming 90 percent agree there will be even

more interest in green building practices into the future.

2. McGraw-Hill Construction (The Green Home Consumer: Driving

Demand for Green Homes, November 2008) surveyed a representative

sample of one million U.S. households (equating to three million

consumers) to find those individuals who had purchased green homes

over the last three years. Going green was the top reason cited by

survey respondents for remodeling their home. Environmental benefits

such as lower energy costs and healthier air were identified by 42% of

respondents as their main reason for home improvements. The study

also found that:

- 70% of buyers are either more or much more inclined to purchase a

green home over a conventional home in a down housing market.

- Overall, lower income buyers say they found tax credits and

government programs, indoor air quality benefits and green

certifications to be the most important incentives for them to buy green

homes.

- Making homes greener is now the number one reason for home





improvement (42%) over remodeling for comfort reasons (34%) or to

improve appearance (24%).

- More than 80% of respondents said they believe that green homes

are not just more economical, but offer better and healthier places to

live.

3. Green remodeling is the hottest business opportunity to hit the

remodeling {retrofit} market in years according to the National

Association of Home Builders (NAHB) as energy efficiency,

environmentally responsible remodeling techniques, materials and

strategies are being used by an estimated 65-85% of remodelers. The

NAHB estimates that 125 million homes in the US, the vast majority,

lack energy-efficient features but that the average customer is willing to

pay almost $9,000 upfront for better energy efficiency. (NAHB

Remodeling Market Index 2008).

4. When asked to list their top 12 influences in buying a home,

consumers responding to a National Association of Home Builders

survey last year put energy efficiency at No. 2, behind quality of living

space. Five years ago, energy didn't even make the same survey. (*AVID

Ratings, Co conducts an annual survey of home buyer preferences)

5. Green building seems to be insulated from the recession and is

growing. The value of green construction increased five-fold from $10

billion in 2005 to as much as $49 billion this year and could triple by

2013 to nearly $150 billion according to McGraw Hill’s 2009 Green

Outlook study. Their 2008 study included this chart:





BE THERE BEFORE THIS BECOMES “THE NEW NORMAL”

The desire for green homes and buildings is a growing opportunity for

real estate investors. Supply is limited and investors have been slow to

leverage going green as a market differentiator. This marketing advantage for

investors will quickly erode as more companies identify the opportunity, the

incentives are used up and green becomes the “new normal.”As demand grows, the supply of real estate investors and builders

supplying green inventory will eventually catch up. The time to take advantage

of this is now.





4. WHAT PEOPLE WANT - GREEN ELEMENTS IMPORTANT TO

BUYERS & RENTERS

What is Most Important to Buyers

According to a survey conducted by the Earth Advantage Institute inJune 2008, a majority of respondents indicated that a green certification on a

home positively influenced their decision to purchase that particular home.

Some other key findings of the survey:

- Ninety eight percent of respondents would choose to purchase a green-

branded home over a comparable non-green brand home.

- Thirty six percent of respondents said they would pay up to 10% more

(on a $300k home) that incorporated green measures outlined by Earth

Advantage. On a $300,000 home that’s an equivalent of spending an

additional $30,000.

Of the green home elements listed, 77% of respondents ranked energy

efficiency as either ‘important’ or ‘extremely important’. 43% of respondents

ranked Indoor Air Quality as ‘extremely important’ and lower utility costs were

‘extremely important’ to 55% of the respondents.

At the end of the day, most people want to live in a home that is more

energy efficient, less toxic and costs less to run. The number of people willing

to pay more for these luxuries continue to increase spurred on by the near-

constant media attention given to sustainability and green living.

What is Most Important to Renters?

An Apartments.com survey in April, 2009, found that 60% of renters said

that they specifically search for environmentally friendly apartments. In

addition, the survey found that 25% are willing to pay more for those amenities

and 17% said that they wouldn’t rent a non-green apartment.

This survey brings to light a fascinating difference between renters and

homeowners. Both groups are interested in green living and would prefer to





live in a green home. However, renters are more likely to demand green

features while homeowners will install green features if costs aren’t prohibitive.

The reasoning is sound. A renter will pay slightly more in rent to get

lower utility bills and increased comfort. The amount they save in utility bills

will usually more than make up for any rent increase. In addition, since they

aren’t paying for any of the construction or materials costs for green

improvements they want as many green elements in their prospective home as

possible.

This gives savvy ‘green’ rental property investors several fantastic

advantages including:

•

They have little competition, as most rental owners are not greening up

their properties.

• They can get a significant portion of their fix up costs back in the form of

rebates, tax incentives, grants, etc. Thus, they rarely pay full price for

their property upgrades.

• They can charge more in rent because their tenants will enjoy lower

utility bills.

• They rent their property faster and thus have lower vacancy expenses.

All of these same criteria apply to commercial real estate as documented

by many commercial real estate sources. The commercial real estate market

embraced going green earlier than the residential market as the capital costs

for doing so were more easily found and the paybacks in incentives, rebates or

operating efficiencies were more easily demonstrated.





5. WHO HAS THE MONEY?

“WE ARE FROM THE GOVERNMENT AND WE ARE HERE TO HELP”

Really! Right now this is no joke as the government has made going

green part of the American Recovery and Reinvestment Act of 2009. The moneyis there for you to help your real estate investment improvements if you

genuinely desire to make them energy efficient. Below is a partial list of

resources available to real estate investors to receive tax credits, rebates, and a

variety of incentives.

The Database of State Incentives for Renewables & Efficiency (DSIRE) is an

ongoing project funded by the U.S. Department of Energy’s Office of Energy

Efficiency and Renewable Energy (EERE), primarily through the Office of

Planning, Budget and Analysis (PBA). The site is administered by the National

Renewable Energy Laboratory (NREL), which is operated for DOE by the

Alliance for Sustainable Energy, LLC. It is the first place to look for rebates,

credits and incentives for all 50 states. www.dsireusa.org

Grants.gov is the Federal Government’s web site for posting funding

opportunities from all Federal Agencies. It is a central storehouse for

information on over 1,000 grant programs and provides access to

approximately $500 billion in annual awards. www.grants.gov

ENERGY STAR is a joint program of the U.S. Environmental Protection Agency

and the U.S. Department of Energy helping us all save money and protect the

environment through energy efficient products and practices. This website also

offers a list of Federal Tax Credits and Rebates. For example, if you install solar

panels you can receive a tax credit equal to 30% of the cost.

www.energystar.gov/

The Energy Efficiency and Conservation Block Grants (EECBG) Program

was funded for the first time by the American Recovery and Reinvestment Act





of 2009. It is intended to assist U.S. cities, counties, states, territories, and

Indian tribes to develop, promote, implement, and manage energy efficiency

and conservation projects and programs. Through formula and competitive

grants, the Program empowers local communities to make strategic

investments to meet the nation's long-term goals for energy independence and

leadership on climate change. www.eecbg.energy.gov

The Office of Energy Efficiency and Renewable Energy (EERE) works with

business, industry, universities, and others to increase the use of renewable

energy and energy efficiency technologies. One way EERE encourages the

growth of these technologies is by offering financial assistance opportunities for

their development and demonstration. www.eere.energy.gov

The American Recovery and Reinvestment Act provides Tax Incentives and

Tax Credits for individuals to invest in energy-efficient products. www.irs.gov

EPA leads the nation's environmental science, research, education and

assessment efforts. The mission of the Environmental Protection Agency is to

protect human health and the environment. Numerous sources of funding for

green building are available at the national, state and local levels for

homeowners, industry, government organizations and nonprofits.

www.epa.gov/greenbuilding

Local Governments for Sustainability (ICLEI) is a membership association of

local governments committed to advancing climate protection and sustainable

development. Find the latest funding opportunities offered by localgovernments. http://www.icleiusa.org/action-center/financing-staffing

6. WHAT MONEY IS AVAILABLE?

There are a number of rules of thumb to these different sources of cash or

credits.





• Incentives: These are things that a city or county is willing to do to

encourage green building or renovation in their jurisdiction. They will

give you cash incentives or a cash offset such as waiving permitting

fees. If the city or county gets homes built that are LEED certified or

built to Build it Green standards as in (Encinitas CA) they will provide

grant money to encourage builders to make this happen.

• Grants:A city or county gives money for a specific project and specific

to a particular building, builder and renovator. Detroit offers an

example of eco-friendly, low housing complexes. The builder had to

write a business case for the money. An organizational expert and a

grant writer put this plan for a non-profit together that resulted in

subsidies for combined green, low income housing. Once this pool of

money is gone it can be replaced based on experience and success.

These programs have a very specific value. Once established, they are

hard to eliminate but are harder to win without experienced grant

winning expertise. Advice for best legal structuring and for assessing

and winning a grant is essential.

• Rebates – This is simply a discount for buying something or doing

something that is defined as green. The example is Energy Star

appliances or something agreed to be energy or water efficient.

Changing the light bulbs, buying a washing machine and getting a

$50 rebate by proving you bought it with a receipt. These plans have

been around for a long time in many forms by the energy saving and

green movement emphasizing these as investor friendly.

• Tax Credits – These are available at an LLC, entity and personal level

as an earned tax incentive by way of a discount or a refund. Themagic number is $1500 for going energy efficient in a specific area

such as insulation upgrades. There are much higher allowances for

adopting alternative energy sources such as solar and wind (popular)

or geo-thermal (less frequent) and offer uncapped tax incentives up to





30% of the capital costs of the upgrade for residential or commercial

properties.





7. HOW TO APPLY FOR FUNDS FOR YOUR PROJECTS

Applying for and receiving grants, incentives, rebates and credits are

both an art and science. The government agencies and non-governmental

organizations we've spoken about have money to give and will do so willingly aslong as you ask for it correctly. Remember their mind-set. They are chartered

to give this money to deserving projects BUT they also want to make sure they

can easily comply with their internal documentation requirements. This is the

government.

There are at least four requirements for gaining the maximum amount of

grants, incentives, rebates and credits:

1. Complete all documents in legible print and make sure to include every

item they require. It sounds basic but you'd be amazed how many people get

their applications rejected or miss the deadline to receive funds because their

paperwork is incomplete or illegible. If what you submit is missing anything

there is a strong chance it will be consciously overlooked as it is additional

work to correct this.

2. Follow their time-line and procedures. Make sure you are doing what's

required when it is required. Do not do it before or late.

FOLLOW THE RULES & PAY ATTENTION TO THE CLOCK

Jim Simcoe reports he recently had a client who completed some energy

efficient work prior to getting an energy audit (as per the rebate program

instructions). All the work he had completed (roughly $3500) was disqualified

from the rebate because he didn't follow the right procedure. So make sure you

follow the exact time-line and step-by-step instructions they give you.

3. Learn which rebates can be combined and apply for everything. Some

programs overlap and do not restrict you from pursuing more than one rebate

for one energy efficiency measure you complete. For example, you might be

able to get a $2000 state rebate for insulating your walls with eco-friendly





blown insulation. In addition there may be a manufacturer rebate for $500.

The work and materials may have only cost you $2000 to complete but you

may be able to get both rebates. Check out all rebates and apply for

everything.

4. Apply for a rebate, credit or incentive for any energy efficiency

measure you're completing even if it doesn't have an applicable rebate.

Utility companies, city governments and non-governmental organizations want

and need homes and businesses to be green. In some cases they will offer a

rebate or incentive where there isn't one.

PETITIONING FOR A NEW SUBSIDY

There is a little known program through San Diego Gas and Electric that

allows a business owner to submit a proposal for a rebate for an energy

efficiency initiative a business may wish to pursue. This is not specifically

covered by any other program. The program will provide a maximum of

$350,000 if the proposal is approved. Take the example of a small printing

company with 20 employees. A new printing press (costing $200k) is developed

that cuts power usage by 55%, emissions by 65% and waste by 70%. That

business could petition SDG&E to subsidize some, if not all, of the costs of

purchasing that equipment. The business gets new energy efficient equipment

and lower bills as they are using less power and creating less waste.

Check with your local utility for these types unpublicized programs.





MAXIMUM PERFORMANCE FROM YOUR INVESTMENT PROPERTIES:

DOING IT YOURSELF VS. USING EXPERTS

In this field both time and expertise translate to money. Investors who

use expert advice benefit for two simple reasons: Time and money.

Greening up a portfolio is a full time task. The research necessary to

identify the programs, find the points of contact, navigate, define and fulfill the

compliance requirements of a rebate or an incentive or grant application

requires unfamiliar expertise. It can be a simple process if the applicant

investor knows what they are doing. Alternatively it can be a nightmare

because of the unfamiliar bureaucratic processes. Missing one checkbox on an

application can lead to delayed application and rebate payments. In some cases

this means failing to meet simple rebate requirements and being rejected

entirely for a simple administrative oversight. A botched application can

literally cost thousands of dollars.

The application familiarity and execution process can be arduous and

time-consuming. It typically takes two to three months researching all of the

applicable rebates, tax incentives, credits and grants that are available to you.

After spending this time, it is possible the applicant will still miss thirty to fortypercent of the money available. Worst still, blow the program expiration date.

If after reading this report and understanding the investment

opportunities, you want us to help with specific and affordable advice, then

please follow the process outlined below.

It is our belief, based on experience, that the time-to-money ratio,

barring any changes to known and current administrative processes, will be

faster and result in additional payments, rebates or incentives to the applicant.

For more information on this program you may contact

[email protected]

A. PROCESS ORGANIZATION





PUBLISHERS NOTE:

This is a work in process as the variety and list of incentives differs per city and

county. The attached examples are going to be expanded as we develop these by city. If

you need this to be done for you immediately for any project, please contact

[email protected].

This begins with identifying the available grants, incentives, rebates,

green loans and rebates that your investment property may be eligible for. Take

our sample spreadsheet and follow the steps to complete this document:

i. Identify address and property tax identification number for the property.





ii. UTILITIES: Identify the local electric, gas, and water companies serving

the property and establish service with each. Note account number for

each service provider.

iii. Find the rebate section of each utility provider’s website. Do this prior to

reviewing any work you intend to have done on your property.

iv. RENOVATION OR UPGRADES: Define the work that must, should or

can be done – minimum to maximum, balancing where the greatest

energy savings and incentive effect can be realized.

v. Make a punch list of all of the materials and appliances you intend to

use/install in the property.

vi.

Cross-reference the punch list with the applicable rebate section of each

service provider’s website to select your materials/appliances.

vii. Once you’ve selected the materials/appliances, contact the manufacturer

to see if there is an additional manufacturer rebate you can receive.

viii. Seek contractor’s bids to meet the renovation requirements or desired

upgrades, specifying preferred products with incentives or rebates.

ix. Review your contractors bid, and/or your intended renovation (or build)

plan for your property.

x. Starting at the top, complete column B (Your Local Agency) for each of

the rows.

xi. MORTGAGE LOANS: If you are pursuing an energy efficiency mortgage,

your local lender may offer these.

xii. If your local lender does not offer energy efficiency mortgages, Google

energy efficient mortgage loans to find a lender that does.

xiii. TAX CREDIT PREPARATION: Inform your accountant that you are

pursuing the $1500 federal tax credit. Make sure that you follow thesteps recommended by the accountant to ensure this tax credit

eligibility. When possible, use an accountant that specializes in green

incentives/tax credits.





xiv. APPLICATION: Use the Market Research section to research the specific

area of your property. Check the two programs listed to learn what

monies (if any) are earmarked for your neighborhoods property.

xv. Acquire any forms or grant application requirements from each utility,

government agency or entity offering grants, incentives and rebates.

xvi. Complete and submit paying attention to accuracy.

xvii. VERIFY AND TRACK OUTCOME: Using your materials list and your

contractor bid, complete Column F to see approximately how much

money/incentives you can receive.

xviii. Use Column G to notate the dates you applied for each specific rebate.

This will be invaluable to help you track the status of all rebates.

xix. Use Column H to track when you have received your rebate/incentive

funds.

xx. Use the other columns of the scorecard as a back drop for your entire

‘Green’ process. This information will help you with all future projects.

HOW ONE CITY FINANCES GREEN RENTAL RENOVATIONS

Private investors who own low income housing can benefit from green

renovations or retrofits with a program run by the city of Phoenix. Other cities

have similar programs.

"It's a program for targeted areas of the city which the city thinks needs

help and resources,” said project management assistant Patrick Larkin of the

Neighborhood Services Department Revitalization Department. “It's a

commitment with the property owner to provide low-income affordable housing

over a ten year period with a city provided ten year deferred loan."

Rehab work has to address energy efficiency, housing quality standards,

handicapped accessibility, and other issues. It uses federal stimulus dollars to

weatherize properties as well as the rehabilitation.

"The money is basically used to do repairs to housing quality standards:

HVAC, plumbing, roofing,” Larkin said. Loans can also be used on landscaping





and curb appeal. Participants don’t have to be Phoenix or even Arizona

residents. "We have out of state landlords who participate in the program,”

Larkin said. For more information, contact: Patrick Larkin, Project

Management Assistant, Neighborhood Services Department Revitalization

Division 602-262-7467 or [email protected]. Check your local town

for similar programs. Opportunity identified by Cheryl King of EcoLiving.





8. RETROFITTING YOUR RENTAL PROPERTY AS A HIGHPERFORMANCE RENTAL INVESTMENT A. INTRODUCTION

Rental property investors can take advantage of retrofit strategies inmore ways that fix and flip property owners or home owners. Rental properties

are the low hanging fruit where investors are paid to take advantage of energy

efficiency and retrofit strategies.

GETTING STARTED

This begins with a plan to identify what is possible with the property.

This may be attractive from a philosophical perspective but the only reason to

do this is if it makes financial sense. It is a matter of comparing the capital

expense of certain retrofit steps that will yield the greatest returns, incentives

and effect on reduced operating costs in an existing residential property?

To repeat:

1. There is the capital cost of the retrofit

2. There are the capital recovery opportunities in the form of grants

incentives and rebates

3. Then there are any applicable tax implications for a property owner

4. The improved operating efficiency over time

5. Any improved valuation because reaching these lower operating costs,

and finally

6. The improved income possible by emphasizing the lower cost of

occupancy of this rental to a tenant that is sensitive to environmental

responsibility, appreciates the lower cost and is willing to pay a premium

for this advantage.

This is no longer a theoretical discussion as we identify later in this

report. The authors have approached the most margin sensitive and skeptical

real estate professionals of all; property managers. Once client, HomeLovers

agreed to field and market test the assumptions. We followed a plan outlined





here and delivered savings that deliver a return in investment in less than 12

months, and over the life of every future tenant lease.

MATCHING INVESTMENT TO RECOVERY

This is about getting “the most bang for the buck” in retrofit investment,

but also “the most buck for the retrofit bang.” Simply investing retrofit dollars

where they will have the greatest effect and the greatest return.

To some this appears cynical, but quite frankly proposing doing retrofit

for retrofit sake is socially naïve and equally cynical.

People are motivated to do things when they see a simple advantage,

especially when there are dollars resulting from the action. The flaw with most

green strategies and the promoters is that they have not taken the time to

analyze the financial effects. This is the sole reason for this report and why our

will readers benefit better.

Every property is different. A twenty percent reduction in energy use is

an attainable goal, while thirty to forty percent reductions range from feasible

and to possible completely dependent on how much an owner is willing to

invest in an energy-efficiency retrofit. With increases in energy and fuel costs

comes increased savings. These become more attractive over time as the

original investment gains greater value because of rent inflation and valuation

improvements.

If any of the legislation that is being proposed to restrict carbon output

by introducing added taxes and costs, only ensure these strategies provide

greater payback immediately and then over time. Whether Cap and Trade

legislation ever comes into effect, the one thing that is certain are increases in

the costs for energy with the rising costs for oil, gas and electrical energy.





MONETIZING THE STRATEGY

One unsurprising realizations in examining this area of improved

investment performance through green retrofits was the vague expressions of

benefits to a total lack of investment justification. Green advocates don’t seem

to do numbers. This is the opportunity we decided to embrace, implement,

prove and document.

The steps to reach a payback can range from simple and relatively

inexpensive with a 12 to 36 month payback to a more extensive approach that

is more expensive and takes a longer to reach a full return on investment. We

do not get anywhere near advocating solar systems or arguments for going off

the grid as most are not feasible or economically practical. Solar installations

are still marginal even with tax credits, because this assumes the tax payer has

income to recover the credit against any taxes owed.

The real goal is to identify the steps that bring the highest and best

returns fastest and with the least hassle.

MATCHING RETROFIT STEPS TO INVESTMENT RETURN OPPORTUNITIES

Determine what needs to be done to match energy efficiency grant

fulfillment requirements with the best recovery potential then execute these

retrofits. What is the capital cost and then how will these generate any capital

recovery or operating expense and income improvements. Any applicable tax

credits are specific to the tax payer. Any increased valuation for the property is

specific to the property and the appraisal strategy that is followed.

Going green is about two things – material and performance –This

discussion is about applying strategies and materials to get to improved

building performance and by definition an improved investment performance.This begins with an energy audit that typically is conducted in the context of

the retrofit. This must be done by a contractor that is recognized as providing

audits that are accepted by the utility or agency that you are expecting to

recover the grant, incentive or rebate from.





One big win in an audit is that it often finds pending building system

problems and catches minor issues before they escalate into more major and

therefore expensive issues.

B. SINGLE FAMILY RESIDENTIAL RENTAL

Steps you can take range from something as simple and inexpensive as sealing pipe leaks to

substantial investments like a high-tech energy-management system. Commonly, the more pricey

the investment, the longer you have to wait for a payback. But you will come out ahead.

Parkchester North, a 55-building condo co

mplex in the Bronx, installed insulated windows. Over the next 20 years, the management

projects that this one retrofit will save the complex more than $500,000 in energy use.

As well, a property's asset value gets strengthened when environmentally friendly technologiesreduce operating costs. And there are the more intangible effects that also add value.

Like New

For instance, just as new buildings, in ads and promotional materials, are quick to trumpet their commitment to sustainable design, so, too, can older buildings evoke social consciousness andenvironmental responsibility by doing energy-conserving retrofits that can attract co-op or condobuyers. A green building is healthier and more comfortable than otherwise because interior air quality is improved and prospects like the idea of being responsible citizens, especially if theycan also save on their utility bills.

For a building contemplating these kinds of improvements, the key is to compare the upfront costof a green-related retrofit with its projected payback in terms of energy savings. The best way tostart is with an energy audit by a certified contractor or consultant. The audit will give thebuilding a handle on what needs to be done, what can be done, and what the estimated price tagwill be. Audits can be carried out separately or in combination with a full capital-needsassessment and capital plan.Here are examples of some of the more easily accomplished retrofits:

• Upgrade your lighting. Substitute compact fluorescent lighting for fluorescent bulbs.CFL bulbs last ten times longer than conventional ones and slash energy consumption by66 percent.





• Install bi-level lighting in public areas such as staircases, hallways and the laundryroom. These setups change from dim to bright only when sensors detect foot-traffic,rather than burning lights brightly around the clock. The result? A 50 percent decrease inelectricity consumption.

• Prevent heat leaks. Check pipes and ducts for leaks, and seal them accordingly. Inspectthe whole building envelope for cracks and other openings from which heat can escape.

• Save in the kitchen. Substitute Energy Star appliances for older refrigerators(particularly profligate wasters of electricity) and ranges.

There are many other available retrofits, including the installation of photovoltaic cell arrays onthe roof to harness solar energy, or planting a green roof in which vegetation provides an extralayer of insulation that deters heat loss while reducing summer cooling needs by as much as 25percent.

Making Condense of It All

Two recommended but substantial investments involve your heating system. Both yieldimmediate savings in fuel consumption, but recouping the capital outlay can take three to sixyears.

High-tech condensing boilers are much more energy-efficient than conventional ones becausethey condense and recycle exhaust gases to preheat water entering the boiler recapturingenergy that otherwise would escape up the chimney. This increases the efficiency of fuelconversion to energy to over 90 percent, compared to the 80 percent or less of conventionalboilers. This not only saves money but also reduces emissions into the environment.

However, condensing boilers are up to 50 percent more expensive to purchase and install thanthe conventional variety and require more maintenance. The savings will pay for this addedexpense, but only after a few years.

Condensing boilers also cannot be used in steam-heating systems so the best route to higher efficiency in that case is with a computerized energy management system. An EMS useselectronic sensors throughout the building to continually monitor room temperatures and ensurethat heat is correctly distributed. More advanced EMS installations also provide zone controls for finer adjustment of heat-balance. Fuel costs are reduced because the monitors feed the boiler much more accurate information than a thermometer-based system. Long-term maintenance

problems are also minimized because the EMS alerts management as or before they arise.

There are many shades of "green" available to the enterprising co-op or condo board, enablingthe adaptation of relatively simple strategies now and to phase in further improvements later.Retrofits quickly show up in bottom-line savings while continuing to add to the value of apartments. Operating costs are pared, the building's value increases and you make a significantcontribution to decreasing harmful air emissions and to mitigating climate change.





Not only do you save money, but you get to be all global-warm-and-fuzzy.





8. HIGH PERFORMANCE GREEN APPRAISALS

Once the short, medium and longer term grants, incentives, rebates and

tax credits (state & Federal) are identified as opportunities to recover the

expense of the capital investment and operating improvements, the next step is

understanding and monetizing the effect retrofitting a home has on the

property appraisal.

There is significant survey information that confirms properties that have

undergone retrofit to meet higher performance standards, homeowner occupied

or intended as rentals. These are theoretically valued more highly than

properties built to the lower code standard of similar, location, square footage

and configuration that have not benefited from an energy efficient retrofit. We

assume they appraise at a superior value than the similar code built

properties.

Currently The Appraisal Institute and other industry bodies take little to

no position on the effect a retrofit has on turning a property into a high

performance property. They agree it is good but do not have any empirical data

to support improved appraisal values.

Ask the average appraiser about the preferred treatment and value ahigh performance property should receive and the response is hesitant. The

Appraisal Institute directed our inquiry to the significant reports and articles

that support the appraisal industry as acknowledging green retrofit strategies

as having some value, albeit a currently undefined,

This still does not reduce the retrofit to a viable number.

AVERAGE APPRAISALS Understanding the appraisal process helps understand why

understanding the improved value of a high performance versus code built

property is still an evolving skill.





The goal of an appraisal is to set the current market value of a piece of

residential real estate. This is mark the price to what the current market says

buyer will pay for a comparable property or a “mark-to-market” valuation. This

sets the market value and sales price in a normal market.

A lender requires an appraisal to confirm the value of the property that

will be security for any mortgage made to a borrower buying this property. This

is a formal process and should not be compared to a comparative market

analysis (CMA) done by a real estate agent to determine and set an asking price

for a property seller. A CMA is used to suggest an asking price. An appraisal by

a licensed appraiser is the only valuation report a bank will use when

considering the property value as security.

• Appraisers are licensed by individual states after completing coursework

and internship hours that educate and familiarize them with the real estate

markets that they will most likely work in.

• The lender might use internal staff appraisers, or contract with an outside

and independent appraisal company. Choosing an outside the appraiser,

and someone the lender is not familiar with, the results might be subject to

review before they are accepted.

• The appraiser is ideally an objective third party that has no financial or

other connection to any person involved in the transaction, seller, agents,

buyer or lender. This was one area of extensive conflict during the

overheated residential markets of the last decade.

• The property to be appraised is defined as the subject property .

• The cost of the appraisal is typically charged to the buyer/borrower as a

service fee by the lender as part of the loan application process.





CONTENTS OF A RESIDENTIAL APPRAISAL REPORT

Appraisals are very detailed reports, but here are a few things they

include:

• Details about the subject property, along with side-by-side

comparisons of three similar properties.

• An evaluation of the overall real estate market in the area.

• Statements about issues the appraiser feels are harmful to the

property's value, such as poor access to the property.

• Notations about seriously flawed characteristics, such as a

crumbling foundation.

• An estimate of the average sales time for the property.

• What type of area the home is in (a development, stand alone

acreage, etc.)

RESIDENTIAL APPRAISAL METHODS

There are three ways to determine the value of anything, and each plays

a part in appraising residential properties :

1. Sales Comparison Approach

This is the most widely-used and accepted in residential practice is the

sales comparison approach. The appraiser bases their opinion of the subject

property value on what similar properties in the vicinity have sold for recently,

with appropriate adjustments for time, acreage, living area, amenities and so

on.

Typically two other properties of a similar nature that are within two

miles of the subject property and that have sold within the last six months.These benchmark properties are called comparables , or comps .

No two properties are exactly alike, so the appraiser must compare the

comps to the subject property, making technical and mathematical





adjustments to the comps in order to make their features more in-line with

those features of the subject property.

Making and applying these adjustments is where the expertise of the

professional appraiser becomes necessary in understanding how much or how

little value a fireplace or other feature may have without knowing the

neighborhood, talking to real estate professionals and recent buyers in the area

about the importance of these amenities is in that particular location and

market. The result is a figure that shows what each comp would have sold for if

it had the same components as the subject.

2. Cost Approach

Another appraisal approach is the cost approach. How much would a

property cost to replace, that is, rebuild, minus "accrued depreciation?" This is

defined as the depreciation that has occurred since the property actually was

built. The cost approach includes concepts like "economic life" and "effective

age" that are mostly of use in determining the value of special use properties,

special purpose properties or properties where subsequent structural

improvements greatly impact value.

The cost approach is most useful for new properties, where the costs to

build are known. The appraiser estimates how much it would cost to replace

the structure if it were destroyed. The land cost is included in the value.

3. The Income Approach and Capitalization Rate

The third approach to value is the subject property based on income they

generate for their owners -- the most obvious examples being rental properties

such as apartment buildings, non owner-occupied houses and duplexes and

the like. The rental income an owner might reasonably expect from a property

is part of its value. For a purely owner-occupied residential property, this maynot be applicable, but it can be important if the property is to be rented out or

used otherwise to generate income, such as a rental home, store or office

building.





This income can be affected by improvements to the property that

make it more desirable to rent or less expensive to operate and maintain

because the property has been retrofitted for higher performance

through better energy efficiency.

HISTORY AND RELATED MARKET DEVELOPMENTS

Most of the best high performance and green related building, market

research and appraisal work began in the U.S. Northwest in cities like Seattle

and Portland. This was driven by commonsense and more recently by social

and environment sensibilities.

This echoes a 1971 recession joke about the “last person leaving Seattle,

please turn out the lights.” Along with a sense of humor, Washingtonians and

the Northwest had a sense of conservation. This predisposed them to be early

adopters of the environmental initiatives, particularly high performance. It is

no accident the first appraisals to consider energy efficiency are out of Seattle

and Portland.

Baseline Data and Sales Trends

The data from the previously referenced study by Earth Advantage

Institute, Portland, Oregon validated the fact that green sensitive market,

builders and real estate agents can market, sell and monetize green building.

This July 2009 on data that found code built new homes sold for an

average of $173 per square foot while, similar but green certified, higher

performance homes sold for an average of $193 per square foot. This delivers a

premium of nearly twelve percent, not counting any green build municipal

permit fee waivers, grants, incentives, rebates or state and Federal tax credits.





In Portland, OR:• Certified homes sold for 3% to 5% more than non-certified homes. In astatistical analysis with a 95% level of confidence, the overall price differencewas found to be 4.2%.• Certified homes sold 18 days faster than non-certified homes.

In Seattle, WA:• Certified homes sold for 9.6% more than non-certified homes.• The non-certified homes stayed on the market an average of 5 days longer (or40% more time on the market).

IT’S INCOME PROPERTY!

The economy and the inherent professional conservatism of real estate

appraising and valuation professions promotes a risk adverse approach to

valuation. They are not willing to pioneer new methods or considerations. This

is particularly true in the appraisal of residential real estate, compounded by

the current economic environment

Use of the tradition methods of comparative valuation or replacement

cost of buildings residential is appropriate if primarily for single family. The

simple answer is to legitimately redefine the property from an owner occupied

residence to its true character as a rental property and commercial exercise.

In 2008 about seventy two percent of all residential sales are owner

occupied while the remaining 28% are income property. Small multifamily are

almost always income property.

Therefore the argument is to consider the single family rental property

just like the small multifamily and to use the capitalization rate method of

valuation, after all the debt service and other expenses will be offset by rental

income.

This is a perfectly acceptable and normal approach to valuing an

investment property that does not cause the residential appraiser to move intoan area they are unfamiliar with. The premiums offered by increased income

and the expected reduction of operating costs allow a better capitalization rate.

The variable is that the appraisal group or appraiser must be comfortable

with commercial valuations versus a strict residential approach.





APPRAISAL PROTOCOLS

As an aftermath of the sub-prime meltdown, appraisals are not meant to

have any contact with the vendor or the bank, however it is strongly suggested

that an appraiser take notice of any retrofit activity that has occurred to the

property. We discovered with residential and commercial appraisers, the

leaders in this business realize going green adds value. The fact that operating

costs can be reduced and income improved means in the case of an income

property, the capitalization rate can be improved. This means providing some

evidence of the retrofit and income and expense projections to the bank and to

the appraiser.

SUGGESTED APPRAISER CHECKLIST

Here is the checklist for a client to submit to an appraiser to gain an

increase in value:

7. Energy Audit report (if completed).

8. List of all energy-efficient measures completed (wall insulation added,

HVAC system optimized, etc.).

9. List of energy-efficient materials/equipment installed (low-flow shower-

heads, CFL lighting, weather stripping, etc.).

10. Invoices for the installation calling out the materials used

11. Projected annual utility expense savings based on historical data

(homes past 12 months utility bills or comparable home utility bills).

12. Projected 'Asset Value Increase' based on the Energy Star Formula.

Annual savings in energy costs/Capitalization rate = estimated increase

in asset value. (This comes directly from the Energy Star website.)

13. *Pictures of each energy-efficient measure being installed.

14. *Property valuation link- Something that I will create and have on

my site that will have the latest data/stats on buyers/renters desires for





green and any statistics about green buying trends that would add to the

case for increased values.

*If you think these are valuable.

This also means an investor trying to get a conventional loan approved

by deemphasizing the fact this is an investment property is probably not

getting the best performance out of this transaction.

Appraisers tend to be conservative and less inclined to jump on these

retrofits as increasing value in the case of a owner occupied home valued on

the comparative or replacement method. It is essential the appraiser realize

this is appraising income property where the custom is to use the capitalization

rate method.

The Appraisal Institute Position on Green Properties

The Appraisal Institute is an association of appraisers designed to

advance professionalism and ethics, global standards, methodologies, and

practices through the professional development of property economics

worldwide. They published An Introduction to Green Homes in June 2010 as an

earth-friendly initiative that provides:• An overview of the many programs, organizations, and products

that are fueling the current surge in environmentally responsible

building and remodeling

• Detailed descriptions of LEED and Energy Star green home and

product certification programs

• Information on popular green home products and features such as

energy-efficient appliances, toxin-free flooring and insulation, and

vegetated roofs

• Updates on environmental organizations that are leading the way

in sustainable building, including the U.S. Green Building Council

and NAHB Green





• Detailed case studies focusing on various attributes of green

homes

• Insights on how green features affect the value of homes

But most important for investors -

• Methodologies that can be applied to measure this increment of

home value

The publication spends most of the time explaining green and retrofit

issues and identifies this is a new field most appraisers are not familiar

with. Most importantly it establishes that green features and issues are a

growing movement worthy of an appraiser’s attention. Below are

summaries of specific comments from An Introduction to Green Homes.

As an investor I would have a copy of this document on hand to help

appraisers and any lenders understand the state of the market and what

they are expected to do.

The Standard Uniform Residential Appraisal Report

These are Fannie Mae Form 1004 or Freddie Mac Form 70. These only

reference green building issues in two places on either URAR form:

Page 1 URAR – Additional Features allows room for a one and half line

description of any “special energy efficient features.” This is inadequate to

list all of the changes but this can refer to a specific addendum that can list

all of the upgrade and retrofit features. This is for the benefit of the lenders

underwriter.

Page 2 URAR – This is the sales comparison approach grid. This

references “special energy efficiency features” on page 1 and any addendum.

Now a contradiction arises. It may or may not effect value given theenergy efficiency of this property if it is compared directly with other retrofit

properties. Page 522 of 2010 Fannie Mae “Selling Guide” states:

B4-1.4-13, Appraisal Report Review: Insulation andEnergy Efficiency of the Improvements (04/01/2009)





IntroductionThis topic contains information on insulation and energy efficiency of the improvements.

Insulation an d Energy Efficiency of the Improvements

An energy-efficient property is one that uses cost-effective design, materials, equipment, and site orientationto conserve nonrenewable fuels.

Special energy-saving items must be recognized in the appraisal process. The nature of these items andtheir contribution to value will vary throughout the country because of climactic conditions and differences in util itycosts.

Appraisers must compare energy-efficient features of the subject property to those of comparable propertiesin the “sales comparison analysis” grid to ensure that the overall contribution of these items is reflected in themarket value of the subject property.

Then on page 537 of the Fannie Mae Selling Guide allow any income

adjustments to be used as an added argument for appraisal considerations

using a background of comparable valuations of similar properties.

B4-1.4-20, Appraisal Report Review: Income Approach toValue (04/01/2009) Introduction

This topic contains information on the income approach to value.Part B, Origination Through Closing Subpart 4, Underwriting PropertyChapter 1, Appraisal Guidelines, Appraisal Report Assessment - May 27, 2010 Income Approach to Value

Fannie Mae does not accept appraisals that rely solely on the income approach to value as an indicator of market value.

When the income approach to value is used, the appraisal report must include the supporting comparablerental and sales data, and the calculations used to determine the gross rent multiplier.

The income approach to value is not appropriate in areas that consist mostly of owner-occupied properties

since adequate rental data generally does not exist for those areas.





GREEN MORTGAGES

INTENTIONALLY LEFT BLANK AS CONTENT FOLLOWS IN

VERSION 5.





9. MARKETING FOR A PREMIUM RETURN

Once the grants, incentives, rebates and tax credits are identified,

applied for and in process of being awarded and collected, there is a second

part to monetizing a green strategy.This is the market positioning of the property to either sell or rent at a

premium earned because of a green retrofit being recognized as resulting in a

verifiably better property. Watch for “green washing” or fake promotion of a

green property.

There is a healthy skepticism at the whole concept of “going green.” It is

based on a serious lack of baseline data and documented experience. Personal

Real Estate Investor Magazine agreed with this skepticism until we began

interviewing and finding the source and citations of various claims.

Nothing beats a successful proof of concept to prove to us there is

substance to one or other claim. This proof of concept was designed to prove

that renters would pay a premium for a retrofitted rental property on the basis

of a lower cost of occupancy.

HIGH UTILITY COSTS

A REASON NOT TO RE-LEASE OR TO VACATE A RENTAL EARLY?

One of the most frequent reasons cited by tenants deciding to move out

of a single family rental is the high cost or electric and gas utilities for the

heating and cooling of the property.

Applying a retrofit strategy to a rental property can have the effect of

reducing these costs from 20 to 60% therefore removing or reducing the

frequency of this complaint because this has the potential to lower the cost of

occupancy for a tenant.

We know that if this message is used to position the property for sale or

for rent, this tends to attract more response in a market where few properties

are formally positioned as energy efficient. This next case study substantiates





this. A green advertisement versus the same ad language with no references to

green efficiencies generated three times the number of responses.

PREMIUM RENTAL CASE STUDY - May 2010

Columbine Property – Phoenix AZ Objective: To improve rental yield by promoting as energy efficient. Outcome: Achieved a 10% increase above market rate rent.1. Proposed market rent for this property was $1,095.2. Property rented for $1,195 generating a monthly premium of $100 overmarket rent and annualized at $1,200.

Conclusion - This unequivocally proved that a premium rent was gained frompositioning, advertising and selling a rental property as a maximumperformance with a lower cost of occupancy because of increased energyefficiency. Process: 3. An ad was created and posted on CraigsList.com that emphasized “green.”(see below).4. Prospective tenants responded to the 'green' web ad.5. The Leasing Representatives at the property management company needs to

be coached to emphasize the energy efficiency and tenant savings.Note well: In this case, even though the sales rep did not think 'green' was afactor in the rental sale and they did not mention 'green' as an advantage in thesales process, they achieved a rental premium of 10% above market or $100more a month or more $1,200 on an annual basis. Sample Ad Copy:

Save $$$ monthly in this energy-efficient 'GREEN' home with pool!

This home is scheduled to receive numerous green energy-efficient upgrades prior toyour move-in that are projected to lower your utility bills by 30% or more!

Upgrades like improved insulation (to keep it cooler in the summer and warmer in thewinter); energy-efficient showers and sinks, etc.This is the only affordable 'green' home in Peoria and can literally save you hundreds

of dollars a year on your utility bills.If you're interested in seeing the home, please email XX, thanks!

MARKETING IDEAS





Leveraging a hungry media with interesting content

The media can be leveraged with interesting stories about green projects

as they need content. Green content sells to green sensitive media.

Thirty years ago most content came from these sources:1. TV- 3 channels (ABC, NBC, and CBS)

2. Radio- FM or AM

3. Print- Newspapers, magazines and books.

At the time TV came on at 6 a.m. and signed off at midnight. There were

ten radio stations that had the dominating influence in your area. The morning

and the afternoon paper had significant power and sway. Getting press was

hard. Today, the Internet, cell phones, video games, mobile phone apps,

satellite radio are easily available and have completely diluted the power of

these historic media outlets channels. The average wired TV gets 300

channels.

With the abundance of media sources and a shift to non-stop, 24 hour

news cycles, the need for content is voracious. Media sources and their

reporters, writers and producers crave “eyeballs” and the ratings that follow

good content reaching large audiences and readerships. The need to create

relevant content to fill a vast news hole is the good news. The warning to

content creators is clear: create simple messages that can be easily found by

content tracked by meta tags or key words that clearly define the content.

Puppy dogs & infants

Puppies and babies are feel-good stories. Walk through a park with

either and you're bound to get smiles. The media loves feel good stories.

Currently, sustainability is a hot topic. Being green saves money, protects the

planet and when positioned as a financial advantage attracts no controversy.

It's the triple-crown of content for any media source: It's interesting and

compelling, it benefits the reader/viewer directly and makes the media source

look like an expert.





The third element is key to having the media recognize you and your

success because it builds a favorable brand for the media source while your

activities help position them as experts in a field that is gaining mainstream

interest. Being an expert creates a competitive advantage in the fight for

eyeballs. Add a financial justification and this competitive advantage multiplies

as it is interesting and potentially valuable.

How to leverage media to increase profits

First, understand what the media needs: a compelling story, some free

advice and feel-good touch at the end. Your presentation should tell them why

your story makes sense, is timely and ultimately helps their readers and

viewers. The story angle and pitch should follow their suggested format for the

story (case study, profile, trends, etc.)

Second, position yourself as an expert for the interview or profile

attached to the story. Sell the fact that there is no story without a personality

and that the human involvement is crucial. This reaffirms the position of a

thought leader that validates the writer/interviewers story.

Third, with some media attention, more will follow. Leverage this for more

with a personal press release campaign. The more media, the more recognition

as an expert, the more media opportunities will arise.

The benefits to leveraging the media:

1. Third party publicity increases the perceived value of the covered projects.

Positioned as the expert, the perception is that the associated homes/buildings

are higher-performance, greener and thus worth more.

2. For investors pursuing a buy-and hold strategy, especially in central and

recovering neighborhoods, it can attract a better class of tenant, higher rents

and a competitive advantage. There may be ten houses for rent in a certain

neighborhood but tenants will pay a premium for your property because they

saw it on local TV or read about it and now assume it is a high-performance

home and a high performance landlord.





CASE STUDY - IN THE NOW INVESTMENTS

WWW.INTHENOWINVESTMENTS.COM

This is an example directly from a Simcoe Consulting client:

In The Now Investments buys foreclosures and HUD homes in the Detroit

area. They rehab these and then re-sell to investors. When Simcoe started

working with In the Now, they began by greening all of their rehabs using eco-

friendly materials and taking advantage of tax credits and rebates. In The Now

contacted a reporter at Crain’s Business Daily (the largest business publication

in Michigan) and pitched him on doing a story.

Message: In The Now was creating sustainable neighborhoods out of

formerly dilapidated homes. They were also creating green jobs and at the time

were unique in Detroit with this type of green real estate investment. The

result was a full page article, with pictures, published within three weeks of the

reporter interview. New deals resulted with new investors and several new

prospective partnerships as a result of one article. This article has become the

basis of appealing to more media with this opportunity.





11. AVOIDING “GREEN WASHING”

“Green washing” is the practice of companies spinning their products

and policies as environmentally friendly. “Environmentally friendly” or the word

“green” are not standards.'Green' is loosely defined. This presents an opportunity for companies to

falsely claim being green. The bottled water company that claims their

“greenness” because their new bottle is shaped differently and uses 10% less

plastic is employing more cost effective manufacturing, not green

manufacturing. The bottle is still plastic and it still takes almost 2 gallons of

water to produce just one individual bottle of water.

Green washing has grown with the popularity and attention to

environmental awareness. As consumers become more educated they recognize

green washing quicker. The result for a company that falsely claims or

overstates a green position is undesirable. The brand, sales and goodwill that

has been built up over the years can be damaged.

As a green investor/company, avoid misstating your involvement with

green initiatives at all costs. The over-zealous green marketer can create more

problems than sales.

There is a three step plan to ensure staying clear of over-zealous green

marketing and the resultant green washing:

1. Never claim to be 'green.'

Green is an end goal, one that you can strive towards but cannot reach.

To be truly 100% green you'd have to leave absolutely no environmental

impact. This is virtually impossible for any human being, much less a

company. It's better to claim the steps and efforts the company is using to

“Maximum Performance from your Investment Properties” and what you're

doing to be a green-'er' investor/company.





2. Be honest.

Explain to your customers, prospects, vendors, etc. your true

motivations to pursue green strategies as a market advantage, more satisfied

customers, better economics and improved financial returns. This makes

sense and presents the company in a favorable light versus others who claim

their motivation is protecting the planet. People want honesty and will reward

it.

3. Commit to Continuous Improvement.

Continuous improvement is a concept first encountered in Japanese

manufacturing. “Kaizen” is the philosophy or practices that focus upon

continuous improvement. Subscribe to this methodology as you pursue

profits. Solicit your customers, vendors, anyone for their advice and feedback

to improve service and make your projects greener. A 'green' company is most

often thought of as a high-performance company and green a byproduct of this

ever improving process.

Green-washing is a short cut when there are no short cuts. By

conscientiously avoiding misstating your position you create a positive

impression and create a competitive differentiator from competition.







The key is to position yourself as a green investor and “partner” with the

bank. Explain the benefits of selling a green property over competition

(favorable media attention, higher-performance homes and a premium

appraisal, etc). Most banks prefer to sell their distressed properties to

responsible investors and green helps this image.





Appendices

1. San Diego County, San Diego & adjacent cities

2. San Diego City and County Template - Initial Incentive Recapture

3. Projected Ongoing Operating Cost Improvements with simple upgradesto water flow and lighting.

4. Maricopa County, Phoenix & adjacent cities

5. Phoenix Program Lists

6. Phoenix City & Maricopa County Template - Initial Incentive Recapture

1. San Diego County and County Cities

Documents

Green Real Estate Investment Study